The Use of Fundamental Value for Private Equity Valuation: the Case of Russian Economy

Abstract

This research continues the previous works, testing the reliability of accounting-based valuation models. Basic methodology of reliability research was proposed by J. Ohlson (Оhlson, 1995; Feltham, Ohlson 1995), and was tested and recognized in a number of works later on. Recently the results of testing the accounting-based valuation models were extrapolated and applied for valuation of companies going on IPOs (Bukhvalov et al., 2012). The goal of this research was to apply the same approach to value private equity or non-traded companies. The cases, which are analyzed, are the cases of holdings’ transfer to a single share principle, which involve determination of fair values of holdings’ non-traded subsidiaries. The results that can be considered as one of the first steps in constructing a valuation approach adequate for Russian market are not yet enough to make final conclusions. However, based on the two cases analyzed in the framework of this research, we concluded that the model provides reliable and meaningful results.